Business deregulation in Ukraine: new perspectives for investors

May 2015 | EXPERT BRIEFING | COMPANY LAW

financierworldwide.com

One of the goals Ukraine’s government set itself is to improve the nation’s stance in the World Bank’s ‘Doing Business’ ranking by making structural changes to its regulatory system. Currently, Ukraine ranks 96th out of 189 nations. Ukraine has now climbed 16 positions thanks to government actions aimed at deregulating business procedures. It stands to reason that deregulation will bring amazing economic growth worth billions of hryvnias in income, notwithstanding overcoming the difficulties that have faced business owners and managers.

To deregulate business activities and to bring Ukrainian legislation in line with EU legislation, the Cabinet of Ministers of Ukraine has adopted Resolution 42, ‘On Some Issues of Business Deregulation’, which came into effect on 11 February 2015. The innovations introduced by the Resolution are aimed at simplifying the environment for doing business and decreasing corruption in the agricultural, food, oil & gas and IT industries. The Resolution is focused, inter alia, on simplifying the state registration procedure for foodstuffs, controlling the circulation of pesticides and agrochemicals, abolishing the compulsory monitoring of compliance with the special conditions for subsoil use as well as simplifying the employment procedure for foreigners and stateless persons.

For the food industry, the Resolution envisages the abolition of quality examination for specialty foods to reduce the costs of business entities for licensing procedures that are not applied in the EU.

In terms of agribusiness, the Resolution introduces a clear procedure for obtaining marketing authorisations for plant protection products and permits for importing plant protection products to be used in state trials. Precise terms are set for some constituents of the process (import permits for experimental batches shall be issued within 10 days after the documents are filed, payment for expert examinations shall be made within 10 days, and marketing authorisations shall be issued within 10 days). These novelties make the registration procedure for plant protection products more transparent. The Resolution also simplifies the registration and re-registration procedures of plant protection products. For instance, the procedure for changing the status of the registration from ‘experimental’ to ‘permanent’ has been clarified. The Resolution abolishes compulsory quarantine certificates for grains and oilseeds and their derived products, food waste and residues and thus reduces the relevant costs of enterprises, in particular, the downtime costs.

Also, the Resolution reduces the issuance term for phytosanitary certificates from five days to 24 hours after the relevant vehicle load time. This will allow reducing the costs associated with vehicle downtime. It should be noted that such certificates are issued within two hours in the EU.

For the oil & gas industry, the Resolution abolishes the compulsory monitoring of compliance with special subsoil use conditions, which is too costly and unclear. Instead, the geological monitoring process will be fleshed out, which would reduce the room for corruption and fraud and would help reinvest in the improvement of equipment and processes.

The Resolution has also introduced some substantial changes to the Procedure for Issuing Employment Permits for Foreigners and Stateless Persons by, among others: (i) simplifying the procedure for employment of foreign IT specialists and graduates from leading foreign universities; (ii) decreasing the time limits for issuing or prolonging a work permit; and (iii) allowing work permits to be prolonged an unlimited number of times.

Such simplification is a part of implementation of the EU-Ukraine Association Agreement and is aimed at removing bureaucratic barriers for doing business in Ukraine. In particular, the Resolution introduces a shortened procedure for obtaining permits for foreign IT professionals and graduates from a top 100 university (according to the world rankings) if they are seeking a position as a company manager in the software industry, or a position as a systems or software developer, or a program technician or any position in a company, provided that foreigner has graduated from a top 100 university according to the world rankings (as per the list of rankings referred to in the Resolution).

The above provisions should relieve the employer from the duty to justify employing such foreigners by submitting a report on available vacancies to employment centres. Previously, the employer had to provide a report on available vacancies to the employment centre even when employing a foreign IT specialist or graduate of a leading university. The employer was obliged to wait 15 calendar days in order to confirm that there were no unemployed Ukrainians suitable for the vacancy.

Therefore, the introduced amendment shortens the period for obtaining work permits for IT specialists and graduates of leading foreign universities by at least 15 calendar days. The period to consider applications for issuing or prolonging permits has been reduced. Instead of 15 calendar days, employment centres now have only seven days to make a decision.

The application period for prolonging a permit has been extended.The terms for requesting a prolonged permit were changed in favour of the employer. Currently, in order to prolong the work permit, the employer must refer to the employment centre no later than 20 calendar days (instead of 30 calendar days) prior to the expiry of the work permit.

The mechanism for informing employers about the results of their applications for issuing or prolonging permits has been improved.It has been specified that the relevant notices shall be sent to employers by mail with return receipt requested, and, additionally, by email. Apart from that, the emails shall contain, among other things, the relevant bank details for the payment of issuance fees.

Other novelties

The timeframe for submitting a labour contract executed with a foreign employee to the employment centre was extended to seven business days, where previously it was three business days. Employment centres are obliged to return documents previously filed by applicants if the employer is refused in permit.

In general, this Resolution is aimed at harmonising the laws of Ukraine with EU legislation, as well as reducing the corruption component of doing business. The above changes should have a positive impact on the business environment in Ukraine and thus create favourable conditions for attracting foreign and domestic investments, as well as improving Ukraine’s position in the ‘Doing Business’ranking.

Anna Zorya is a partner and Kateryna Zviagina is an associate at Arzinger Law Office. Ms Zorya can be contacted on +38 044 390 55 33 or by email: anna.zorya@arzinger.ua. Ms Zviagina can be contacted by email: kateryna.zviagina@arzinger.ua.